Understand what Decentralized exchange is and how it works
The term decentralized exchange (DEX) refers to an exchange that uses a distributed ledger, does not store user funds in its servers, and simply serves as a platform for matching bids made by users. A platform like this allows participants to trade directly between each other (peer-to-peer) without requiring financial agents.
According the research, the daily trading volume of Decentralized exchange platforms is more than 4 billion dollars. Because DEX projects are among the most popular DeFi project types, we can predict that user numbers, as well as transaction volumes, will only increase.
Cryptocurrency exchanges (DEXs) without centralized authority are called decentralized exchanges. They provide decentralized exchange functionality like trading/exchanging assets, order matching, and deposit placement. Whenever we speak of decentralization, we are referring to the absence of a central server or node that controls all operations. With smart contracts, nodes form a distributed network that eliminates the need for intermediaries.
Centralized exchanges incur costs that are reduced by decentralizing and speeding up all processes. It is more beneficial to use a decentralized exchange than a centralized exchange. That is why so many users use them.
However, most existing decentralized exchanges does not have true decentralization, as they use their servers to store trading data and to trade assets. Unfortunately, such DEXs do not adhere to the meaning of real decentralized exchange, so they can’t offer all benefits of a real DEX.
Working process of Decentralized exchange
DEX with block chain
A decentralized website exchange may run everything on a blockchain, storing every order there. This approach is considered transparent because users do not have to trust third parties with their orders, so they cannot be misused.
However, this approach is the least practical. Due to the fact that users are asking all nodes in the network to permanently record their orders, there is a fee associated with it. In addition, they have to wait for the miner to include their transaction in the blockchain, which is also inconvenient.